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The Federal Deposit Insurance Corp. and BlackRock are headed for a showdown in January over the U.S. watchdog’s efforts to increase oversight of investors who take large stakes in small and medium-sized banks.
The FDIC has given the $11.5 trillion investment giant until Jan. 10 to accept proposed new compliance measures whenever it owns more than 10 percent of the outstanding shares in FDIC-supervised banks, the people said. familiar with the situation.
Some politicians and regulators have grown increasingly concerned about the growing power of BlackRock, Vanguard and State Street as a result of the huge flood of money pouring into “passive” funds that buy every company in an index.
These critics worry that the scale of their holdings could allow managers of large passive funds to influence companies that are vital to the economy, pushing them to address climate change, for example.
Vanguard reached an agreement last week in which it promised to testify to the FDIC that it would remain a passive investor for a much larger group of banks than it had in the past. The new group includes lenders that are part of a larger banking company. Vanguard also for the first time agreed to specific oversight by the FDIC to ensure it adhered to “passivity covenants.”
But BlackRock and investment industry groups have complained that strengthening the FDIC’s default covenant requirements would double oversight by the U.S. Federal Reserve, raise compliance costs and make bank stocks less desirable investments. .
“BlackRock strongly opposes the proposal, which would harm investors, disrupt the flow of capital into the economy and undermine the efficiency” of the existing regulatory framework, the group wrote in an October comment letter.
BlackRock proposed its own version of the default agreement to the FDIC in early December, which did not include the compliance measures that Vanguard has now agreed to. The watchdog contacted BlackRock on Friday after it made the Vanguard deal public and set a deadline of Jan. 10 to sign off on something similar, people familiar with the situation said.
FDIC Director Jonathan McKernan, who has pushed publicly for new default agreements, has repeatedly said strong compliance measures are essential.
Thirty-nine US and regional community banks are directly affected by the compliance fight because BlackRock owns more than 10 percent of each.
The FDIC has pushed back the deadline for the standstill agreements several times after originally setting it at Oct. 31. The watchdog is expected to get a new chairman and several new board members after Donald Trump takes office as US president on January 20.
BlackRock and the FDIC declined to comment. State Street has not been affected by the battle because it is a bank and therefore already more heavily regulated.
